The US dollar has maintained its status as the dominant reserve currency for over 70 years, a position solidified by the Bretton Woods Agreement in 1944. This dominance has been reinforced by the dollar's stability during major global upheavals, allowing the US to benefit from lower borrowing costs and a trade deficit due to its currency's global acceptance [42785c7e]. Recent data from the IMF's Currency Composition of Official Foreign Exchange Reserves (COFER) indicates a gradual decline in the dollar's share of allocated foreign reserves, which now stands at 58%. This decline has coincided with a rise in the shares of nontraditional reserve currencies, including the euro and the Chinese renminbi [4208eae4] [27f4fe5b].
In a recent statement at the Verona Eurasian Economic Forum in Ras Al-Khaimah, Igor Sechin, CEO of Rosneft, warned that gold is emerging as a significant competitor to the dollar in global trade. He attributed this shift to the US's use of sanctions, which he described as a mistake, predicting that alternatives to the dollar will be found [514e277a]. Sechin emphasized the historical role of gold in commerce, asserting that it will become the dollar's main rival. He criticized the US for losing its leadership in science, technology, and finance over the past 20-30 years, accusing it of exacerbating international conflicts for economic gain [514e277a]. Furthermore, he stated that the dollar's role as a sanctions tool has limited its use in international trade, leading to the rise of national currencies, particularly the Chinese RMB, as viable alternatives [ec6755d1].
Sechin also noted that gold's share in global foreign exchange reserves has increased by nearly 8 percentage points to 20% over the past three years, highlighting its importance as a secure instrument for national currencies [ec6755d1]. Russian President Vladimir Putin echoed these sentiments during his address at the VTB Investment Forum in Moscow on December 4, 2024. He accused the US of exploiting global economies through the dollar, stating that its status as a reserve currency allows the US to benefit financially while undermining other nations. Putin noted a reduction in the US's share of the world economy and the dollar's diminishing influence, mentioning that US allies have reduced their dollar and euro reserves by approximately 13% over the last decade [26a512ee].
In light of these developments, Peter Morici, an economist, argues that the US must adequately fund its defense to maintain the dollar's reserve status. He warns that the modernization of military capabilities by China and Russia poses a significant challenge to US dominance [cf533f13]. Morici emphasizes that without increased defense spending, the US risks losing its global standing and, consequently, the dollar's status as the world's primary reserve currency. He notes that federal deficits at 7% of GDP could erode confidence in the dollar, potentially reducing living standards by 3% of GDP if the dollar's status declines [cf533f13].
In a recent analysis, Donald Trump highlighted the risk of the US dollar losing its world reserve currency status during his 2024 presidential campaign. He opposes this change and aims to prevent it, suggesting that while the potential loss of reserve status is not imminent, it is a real concern. Significant events threatening the dollar include Saudi Arabia trading oil in other currencies, BRIC nations developing a new payment system, and China reducing its holdings of US treasuries [26ffd4cd]. Trump believes he could manage the dollar better by reducing inflation and using dollar-based power judiciously. He leans towards using tariffs to prevent nations from abandoning the dollar, although aggressive tactics may worsen trends [26ffd4cd].
In a strategic move to bolster the dollar's position, Trump appointed billionaire investor Scott Bessent as treasury secretary on December 20, 2024. This appointment aims to maintain the U.S. dollar as the world's reserve currency amid growing challenges from cryptocurrencies and other economic pressures [6cf15ba3]. The Bureau of Engraving and Printing (BEP), led by Patricia 'Patty' S. Collins, is responsible for currency production and is currently focusing on introducing new banknotes with enhanced security features as part of its Strategic Plan 2022-2026. However, the BEP is also relocating its D.C. facility to Maryland, which presents logistical challenges [6cf15ba3].
The euro currently accounts for 21% of global foreign exchange reserves, while the renminbi's share of global payments increased from 4% in 2022 to 8% in 2024, although its global reserve share remains at only 3% [12da4bec]. In a recent call to action, experts from Renmin University’s National Academy of Development and Strategy urged the Chinese government to enhance its provision of yuan-denominated loans to developing countries, aiming to support global de-dollarisation and position China as a primary liquidity source in the international market [f7ad9ac2].
The ongoing decline of the US dollar's share in global reserves is part of a larger trend in the international monetary and reserve system, which is gradually evolving with a shift away from dollar dominance and a rising role for nontraditional currencies enabled by new digital trading technologies [4208eae4] [27f4fe5b]. The recent geopolitical shifts, particularly following Russia's invasion of Ukraine in February 2022, have further complicated the landscape. Western sanctions on Russia have prompted countries to reconsider their reliance on the dollar, leading to a multipolar world order where BRICS+ nations are increasingly challenging dollar dominance by seeking to trade in their national currencies [42e250b3].
Despite these shifts, the US dollar continues to be the dominant global currency, valued at over $25 trillion. The dollar's supremacy is bolstered by the United States' geopolitical influence, historical legacy, and a robust military budget of $877 billion [12da4bec]. However, Trump’s efforts may only slow down de-dollarization rather than stop it, and the dollar's loss of status could cause short-term economic pain, although markets could recover quickly [26ffd4cd]. Furthermore, a transition to a gold-backed dollar could improve the economy, as the current fiat dollar system supports government functions that undermine genuine production [26ffd4cd].
The rise of the 'petroyuan' allows oil trade without reliance on the dollar, posing a potential challenge to dollar supremacy. Major state-owned enterprises, such as China National Offshore Oil Corporation, are actively promoting the use of the yuan in international trade, further supporting its internationalization efforts [f7ad9ac2].
The euro and renminbi face significant hurdles in becoming global reserve currencies, including political fragmentation in the Eurozone and China's economic issues like massive debt and capital controls [42785c7e]. According to a recent analysis by the World Economic Forum, while the US dollar remains the world's reserve currency, some central bankers and global leaders have called for the advent of a BRIC currency to challenge USD dominance. However, the historical forces that have shaped USD dominance include Bretton Woods, the Marshall Plan, and the Washington Consensus, which are likely to ensure the dollar's position as a reserve currency for the foreseeable future [fe6b4d8e].
In conclusion, while the euro and renminbi are gaining traction, the US dollar remains the dominant currency in global finance. The ultimate challenge to the USD as a reserve currency may come from within, as inflation, US debt, and sanctions could diminish the dollar's appeal, leading to significant economic challenges for the US if it loses its reserve currency status [42785c7e] [12da4bec]. The interplay of monetary globalization and geopolitics is reshaping the world monetary order, suggesting that de-dollarization could increase inflation in the US while enhancing financial autonomy for developing countries [42e250b3]. Sechin's warning against forcibly removing Russia from the energy market highlights the potential global economic repercussions of current US policies, particularly for developing nations [28ae9af8].